2016 (2) TMI 124 - AT - Income Tax

Applicability of provisions of section 44AD - nature of work - income from business or from other sources - Held that - Since Shri. P. Shyamaraju was also a partner of the assessee firm, cannot find any fault in him exercising control over the accounts of the assessee as well. Copy of the partnership deed placed also show that Shri. P. Shyama Raju was a partner of the assessee fim. In any case we find that the statement of Shri. V. Samba Moorthy was neither put to the assessee nor assessee was given an opportunity to cross examine in the fact of this. Assessee had produced sufficient records to prove that it was doing contract work. It could very well rely on Section 44 AD of the Act since its turnover was less than ₹ 40 lakhs. Thus of the opinion that CIT (A) was therefore not justified in shifting the source of income from business to other sources. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 153C of the Income Tax Act.
2. Validity of the notice issued under section 142(1) of the Income Tax Act.
3. Classification of income under the head "Business" or "Other Sources."

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) read with Section 153C:
The appellant contended that the assessment order passed under section 143(3) read with section 153C was invalid. However, during the proceedings, the appellant's counsel clarified that the assessment was not pursuant to any proceedings under section 153C, and hence, grounds 2 to 4 were not pressed. Consequently, these grounds were dismissed by the Tribunal.

2. Validity of the Notice Issued under Section 142(1):
The appellant argued that the notice issued under section 142(1) on 26.06.2008 by the ACIT, Central Circle-2(2), Bangalore, was invalid as the jurisdictional transfer from ITO, Ward-1(1), Bangalore to ACIT, Central Circle-2(2), Bangalore, was effective from 01.07.2008. The Tribunal noted that the notice was received by the appellant on 02.07.2008, after the jurisdictional transfer took effect. Additionally, a subsequent notice dated 30.01.2009 was issued by the jurisdictional AO. The Tribunal concluded that the assessment was not invalid merely because the assessment order referred to the earlier notice, and dismissed this ground.

3. Classification of Income under the Head "Business" or "Other Sources":
The appellant was aggrieved by the CIT(A)'s decision to reclassify the income from "Business" to "Other Sources." The appellant argued that the income was returned under section 44AD, which allows for presumptive taxation for businesses engaged in civil construction with gross receipts not exceeding Rs. 40 lakhs. The appellant provided evidence of work orders and bills from M/s. Shyamaraju & Co. India P. Ltd. The AO had rejected this evidence, relying on a statement from Shri. P. Shyamaraju, which was not subjected to cross-examination by the appellant. The Tribunal found that the appellant had produced sufficient records to prove the contract work and that the lower authorities were not justified in shifting the head of income. The Tribunal allowed this ground, concluding that the income should be assessed under the head "Business."

Conclusion:
The appeal was partly allowed. The Tribunal upheld the validity of the assessment despite the jurisdictional issue with the notice under section 142(1) but ruled in favor of the appellant regarding the classification of income, allowing it to be assessed under the head "Business."